It’s Friday, there was a monumental rally in Asia based on some possibly misplaced optimism around trade negotiations, and Nomura’s Charlie McElligott is excited, ok?!
“[I] cannot overstate the movement overnight”, McElligott writes, kicking off his last daily note of the week.
Charlie appears to be in the camp that believes Trump’s newfound willingness to “bend” on trade is the direct result of the October selloff in U.S. equities and, relatedly, the optics around that selloff ahead of the midterms. It’s also possible that the near across-the-board deceleration in factory activity tipped this week by PMIs both at home and abroad served as a wake up call for both sides.
Of course this is Trump we’re talking about, so it’s possible he’s effectively trying to add another fall guy to a list that already includes Jerome Powell and the Democrats.
“The sequencing of events (recent US Equities selloff and timing of said Midterm Elections) has some viewing this as another scheme to ensure a U.S. stock market rally into the elections to boost the Trump platform, while also now boxing-in Xi as far as high expectations for an eventual deal which can then too position him as the ‘fall guy’ if the ‘deal’ ultimately falls through,” McElligott muses.
That’s actually a pretty incisive – if readily apparent – way to think about things and I would encourage anyone who cares about their daily P/L to think along the same lines.
McElligott goes on to flag the insane moves outlined here earlier in “Recapping Friday’s Monumental Rally In Asian Stocks”. One chart we didn’t show you in that post was the Kosdaq, and we’ll go ahead and highlight it here:
Charlie calls today’s move in the Kosdaq the largest since September 2011. It looks to me like the second-largest daily move since 2011, but whatever the case, the 5.05% surge is insane.
But the real shocker is the move in the yuan. Remember how freaked out everyone was about a 7-handle? Yeah, well look at this:
That is the biggest two-day gain for the onshore yuan since January.
“The move in Yuan is jaw-dropping”, McElligott marvels, adding that the two-day move “is now a -6.5 SD event back to the Chinese revaluation of Yuan/ending of the fixed Dollar peg in July 2005.”
In other words: That’s a black swan.
Again, folks seem to be placing a whole lot of faith in this purported “deal” between Trump and Xi, and at least according to CNBC’s Eamon Javers, that faith may be misplaced.
NEW: A senior administration official tells me that the report president Trump is ready to cut a trade deal with China is not true. “There is a long way to go” on negotiations, the official said.
— Eamon Javers (@EamonJavers) November 2, 2018